Detroit financial crisis

U.S. Bankruptcy Judge Steven Rhodes ruled this morning that the city of Detroit is allowed to protect itself from its creditors under Chapter 9 municipal bankruptcy protection. In his ruling, Rhodes said pensions can be treated like any other debt and are subject to potential cuts. We've been following the news as it unfolds today.

Update 3:31 p.m.

Michigan Attorney General Bill Schuette issued a statement today saying he supported the bankruptcy ruling, but was "deeply disappointed" with Rhodes' ruling that pensions are eligible for cuts.

Today is the last day U.S. Bankruptcy Judge Steven Rhodes will accept documents from all sides of the Detroit bankruptcy case.

Rhodes will then look at all the evidence and decide whether the city of Detroit can reorganize itself under Chapter 9 bankruptcy laws.

Rhodes has heard a lot. The city's future path will be up to him.

His decision will be based upon a) whether the city truly has no other options to pay its debts, a b) whether the city negotiated in good faith with its creditors prior to saying bankruptcy was the only way.

No one seems to be arguing that the city has a viable way to pay its debts. And Daniel Howes of the Detroit News argues that defining "good faith" negotiations in exceedingly difficult in this case.

Well, it was quite a week for our state’s largest city. Voters elected a white mayor for the first time since 1969.

Had you gone to Lloyds of London 10 years ago and bet that within a decade, America would have a black president and Detroit a white mayor, today you would be very rich indeed.

But in the city Cadillac founded, attorneys today will offer closing arguments in a trial to determine whether the city will be allowed to file for bankruptcy. While everything in Federal Judge Steven Rhodes’ courtroom is by the book, there is an element of Kabuki-theater unreality about it all.

Nobody really believes the application will be denied. If it were, creditors would tear what remains of Detroit apart with the efficiency of a pack of wolves with a lamb.

That's what the bankruptcy hearing, which started today, is all about.

The federal bankruptcy judge will decide whether the city is allowed to protect itself from close to 100,000 creditors under Chapter 9 bankruptcy laws.

We found out this morning that Michigan Gov. Rick Snyder, the man who ultimately signed off on Detroit's bankruptcy filing, will testify in the Detroit bankruptcy trial on Monday.

Unions had served Snyder with a subpoena, but his live testimony appeared to be an unsettled issue earlier this week.

Gov. Snyder's lawyer argued that the Snyder's recent three-hour deposition should be enough.

But now his counsel says the governor wants to cooperate and will be available Monday afternoon.

Unions and pension funds want to question Snyder about approving Detroit's bankruptcy filing in July as well as other issues related to the case.

They will try to prove to the bankruptcy judge that Gov. Snyder and Detroit's emergency manager Kevyn Orr had bankruptcy in mind all along - that they did not negotiate in good faith with the creditors ahead of time.

Michigan Radio's Sarah Cwiek is live tweeting from today's hearing. Lawyers for the city have already argued in favor of bankruptcy this morning. Now it's time for those opposed to bankruptcy to argue. Here's how Cwiek sums up what their arguments will be:

Detroit Emergency Manager Kevyn Orr has sent out the strongest hint yet that prized pieces in the DIA collection are on the table as a way to put money into the city coffers.

Without offering many details, Orr told the Detroit Economic Club today that there are ways for the DIA to make money from its artwork that might not involve outright sales, but perhaps would involve long-term leases.

Orr was clear -- he said he must consider ways to use the museum's treasures to help the bankrupt city.

And, earlier this week, another one of the city's "jewels" was back in the spotlight.

The State and Mayor Dave Bing announced an agreement under which the State DNR would run Belle Isle as Michigan's 102nd State Park.

Detroit News business columnist Daniel Howes joined us to talk about all this.

DETROIT (AP) — Crews will begin a block-by-block review of streetlights in two Detroit neighborhoods this week as part of a three-year plan to overhaul the city's decrepit lighting system.

Fewer than half of Detroit's 88,000 streetlights are believed to be working, and Public Lighting Authority workers will inspect each light in areas on the city's east and west sides to map out which aren't working and to determine the cause of each malfunction.

"We will use the information we gather to design a specific plan to relight both of these areas as a prelude to moving out into the rest of the city to completely restore street lighting," the authority's Executive Director Odis Jones said in a statement.

Workers will be wearing yellow vests with the Public Lighting Authority's logo and will be driving vehicles with PLA signs on the side.

After approval from City Council, the Public Lighting Authority was set up earlier this year to design and implement the plan to improve Detroit's public lighting system. Gov. Rick Snyder signed legislation last year to allow lighting authorities in some cities.

Detroit’s travails arise in part from a distinctive aspect of America’s divided economy and society ... our country is becoming vastly more economically segregated, which can be even more pernicious than being racially segregated. Detroit is the example par excellence of the seclusion of affluent (and mostly white) elites in suburban enclaves. There is a rationale for battening down the hatches: the rich thus ensure that they don’t have to pay any share of the local public goods and services of their less well-off neighbors, and that their children don’t have to mix with those of lower socioeconomic status.

Stiglietz says the question in front of Detroit now is how the city gets through the bankruptcy process, and that "ensuring that bankruptcy proceeds in a way that is good for Detroit will require vigilance."

In a spate of orders today arising from three separate lawsuits, Aquilina said Gov. Rick Snyder and Detroit emergency manager Kevyn Orr must take no further actions that threaten to diminish the pension benefits of City of Detroit retirees.

State Attorney General Bill Schuette moved quickly and said he will appeal the judge's decision. He plans to ask the Michigan Court of Appeals to grant a stay of that order.

11:22 a.m.

Detroit Emergency Manager Kevyn Orr and Gov. Snyder held a press conference this morning to discuss the Chapter 9 bankruptcy filing for Detroit with the press. They both stressed that for the people of Detroit, "it's business as usual."

"Going forward...we will pay our bills," Orr said. He said priority will be given to those expenses relating to health, safety, and welfare.

"It gives us breathing room," Orr said. "We were getting sued on a weekly basis." Two Detroit pension boards filed suit to try to stop federal bankruptcy proceedings. The action prompted Orr and Snyder to push up the timing of the filing.

Orr told reporters that he asked for a "consensual process" with creditors and interested parties, "but that didn't happen."

Orr was asked "what shocked him most?" when he first opened Detroit's books. Orr replied it was the normalcy of the practice of continual borrowing in the face of mounting debt in Detroit that struck him most.

"What shocked me wasn't the numbers," he said. "What shocked me was the tolerance for this behavior for decades...I wish there had been a lot more outrage over the past ten to twenty years."

Orr referred to his short tenure as emergency manager to deal with Detroit's debt problem. "We're dealing with 60 years of deferred maintenance in 18 months. I can't afford to spend time running in place to fix the problems I'm here to address," he said.

Orr mentioned a list of mounting problems in Detroit as reason to take drastic action - children walking home in the dark after school because street lights don't work, "40 year-old trees" growing out of dilapidated buildings, and slow police response times.

"I recognize [Chapter 9 bankruptcy] is a lever, but we are trying hard to be fair."

Orr said they are looking for an entity to represent retirees in the bankruptcy proceedings, something he said some unions were unwilling to do.

Gov. Snyder became animated when talking about the Chapter 9 filing.

"Now is our opportunity to stop 60 years of decline. This is fundamental... how long has this ...we are doing something. This is forum. This is the place to do it in. This is the place to address the debt question...we will come out with a stronger, better Detroit." Gov. Snyder said. Snyder said not only do the citizens of Detroit deserve an improved city, but the people of Michigan deserve it as well.

Two Detroit pension funds have sued the city’s emergency manager, Kevyn Orr, and Governor Rick Snyder in an attempt to block the Motor City from filing for bankruptcy.

The General Retirement System and the Police and Fire Retirement System of the City of Detroit filed the lawsuit yesterday, Bloomberg’s Margaret Cronin Fisk reported. The state’s constitution offers protection of public retirees’ rights, and the petitioners of the lawsuit are claiming that a Detroit bankruptcy would violate those rights.

Orr’s office refused to comment on the lawsuit.

Orr hasn’t commented on which pension funds would be cut, and to what degree, but he has vowed to make “significant cuts” to pension payments.

SaunteelJenkins replaces Charles Pugh as Detroit City Council President

"Saunteel Jenkins is the new President of the Detroit City Council. The Council voted on new leadership after it lost its two former top officials. Jenkins replaces Charles Pugh, who has vanished from the public eye amidst allegations of a questionable relationship with a teenager," Michigan Radio's Sarah Cwiek reports.

Proposed legislation would let voters eliminate income tax

Republican state Representative Bob Genetski is sponsoring legislation that would let voters decide whether to get rid of the state's income tax.

"He supports raising the state’s sale’s tax to make up for the lost revenue. Former director of the state House Fiscal Agency Mitch Bean says the plan would leave an $8.5 billion dollar hole in next year’s state budget," Jake Neher reports.

Orr cancels bus tour with creditors

Detroit emergency manager Kevyn Orr has canceled a planned bus tour meant to convince Wall Street creditors that the city's condition is dire and they should accept big losses on its debt.

"Orr says the tour could be rescheduled. But it increasingly seems that his negotiations with creditors are hitting a wall. City Council member Ken Cockrel echoes what many think--that resistance from creditors is speeding up Detroit’s timeline for a possible bankruptcy filing," Michigan Radio's Sarah Cwiek reports.

In a recent piece in Bloomberg, Virginia Postrel (a political and cultural writer) argues that the "cause of art would be better served" if the DIA's major works were in other, 'more deserving' cities.

The Detroit News' Christine Ferretti writes this morning that other Detroit cultural institutions are on high alert after the news came that assets at the Detroit Institute of Arts are being counted as potential assets of the city that can be sold to pay off debts.

"The DIA strongly believes that the museum and the City hold the museum’s art collection in trust for the public. The DIA manages and cares for that collection according to exacting standards required by the public trust, our profession and the Operating Agreement with the City. According to those standards, the City cannot sell art to generate funds for any purpose other than to enhance the collection. We remain confident that the City and the emergency financial manager will continue to support the museum in its compliance with those standards, and together we will continue to preserve and protect the cultural heritage of Detroit."

9:19 a.m.

Detroit is in a big financial hole, and the man in charge of righting the ship wants to know what can be sold.

Mark Stryker and John Gallagher of the Detroit Free Press report that Detroit's emergency manager, Kevyn Orr, is considering whether the DIA's art collection should be counted as assets that can be sold to pay debts:

Liquidating DIA art to pay down debt likely would be a monstrously complicated, controversial and contentious process never before tested on such as large scale and with no certain outcome. The DIA is unusual among major civic museums in that the city retains ownership of the building and collection while daily operations, including fund-raising, are overseen by a nonprofit institution.

Stryker and Gallagher report on the many hurdles facing such a sale, including ...

restrictions on selling off city assets in municipal bankruptcy law,

museum ethics and operating rules that forbid selling art,

opposition from patrons who donated art,

and major a public outcry against such a sale:

“There would be hue and cry the likes of which you’ve never heard,” said Ford Bell, president of the American Alliance of Museums in Washington, D.C. “The museum should be a rallying point for the rebirth of Detroit and not a source of funds.”

Orr spokesman Bill Nowling said there's no plan yet to sell any asset of the city, but he said all the city's assets must be accounted for.